Michel Barnier's new audit rules see angry revolt

Europe's heavy-handed sweep of the audit industry has drawn criticism from
leading business groups and fierce rebuke from most audit companies.

Mr Barnier's final Green Paper defied months of campaigning and opposition with a hard-hitting strategy to break up the dominance of the Big Four firms: PwC, KPMG, Deliotte and Ernst & Young.Photo: Reuters

Michel Barnier - Europe's markets chief - has angered many in the audit industry, who warn his proposals will endanger audit quality and long-term competition.

The draft proposals - which will now go to the European Parliament to be approved - will force firms above a certain size to split between audit and non-audit services, which now account for about a third of earnings. And although the draft dropped proposals to have mandatory join audits it retained mandatory rotation, which will force companies to switch auditors every 6-12 years.

The Institute of Directors said the measures rode roughshod over UK rules, while the UK's accounting regulator said the measures risked both audit quality and increasing expense for companies.

Even smaller audit firms, which are set to benefit from new regulations, condemned the measures as unhelpful and destructive.

Mr Barnier's final Green Paper defied months of campaigning and opposition with a hard-hitting strategy to break up the dominance of the Big Four firms: PwC, KPMG, Deliotte and Ernst & Young.

Roger Barker, the IOD's corporate governance chief said: "Such Europe-wide regulation is a blow to the UK's corporate governance... proposals... will undermine the ability of audit committees to respond to the specific circumstances of individual companies. They will also increase auditing costs."

He added: "These are issues should be addressed through national corporate governance codes, not European legislation."

Stephen Haddrill, chief executive of the UK regulator FRC, said: "We welcome the Commissioner's decision to drop mandatory requirements for joint auditing. We continue to have concerns, however, about some elements of the proposals and will scrutinise carefully to assess their impact on quality and cost."

David Sproul, chief executive at Deloitte said rules would have "significant negative unintended consequences" and that the "measures on audit quality would affect all sectors but would be most severe for financial institutions."

James Roberts, head of audit at BDO said creating mandatory rotation would actually hurt smaller firms, as it could result in clients rotating to a Big Four auditor. Mr Roberts also said: "I can't support audit only firms in principle - it will damage audit quality in the long run and have long term damage to whole industry,." Words to go in here please on two lines to go here